The Toro Company (TTC) | The Buildout — AI Infrastructure
The Verdict
The Toro Company is a diversified manufacturer of outdoor equipment and irrigation systems, but its underappreciated underground construction franchise — Ditch Witch horizontal drills, trenchers, and hydrovac trucks — provides the picks and shovels for the hyperscale data-center buildout. Every new AI data center needs fiber, power, and water connections; Toro’s machines dig the trenches and drill the paths for that infrastructure.
| Market Cap | — |
| Revenue (TTM) | $4.7B |
| Revenue Growth | +2.5% |
| EBITDA Margin (TTM) | 12.7% |
| Net Debt | $957M |
| Earnings Beats | 6 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Underground & specialty construction delivered low-double-digit organic growth in Q2, with a ‘robust and growing order pipeline’ tied to data-center, fiber, and grid projects.
- The AMP productivity program is on track to achieve $125M in run-rate savings by end-FY2026, helping operating margin reach a 12-quarter high of 14.4%.
- Free cash flow conversion hit 125% in Q2, and H1 capital returned to shareholders was $361M, demonstrating strong cash generation.
- Management raised full-year guidance twice: net sales growth now 4.0–6.5% and adjusted EPS midpoint raised to $4.56.
- Acquired Tornado Infrastructure Equipment contributed over 2pp to top-line growth and is integrating ahead of plan, expanding the hydrovac offering.
What We’re Watching
- Gross tariff run-rate is $120M annually; FY2026 is neutral due to a $20M one-off refund, but post-2026 mitigation is uncertain.
- Residential segment improved to +4.1% organic in Q2, but full-year guide is only 'about flat'; a consumer slowdown could reverse gains.
- Drought conditions in key US markets could curtail mowing demand, though drier weather may boost golf rounds.
- Management acknowledged Q3 margins face more acute cost pressure; mitigation actions don’t fully kick in until Q4.
The investment case is strengthening as demand broadens across segments, margins improve structurally, and the underground construction tailwind intensifies. The key open question is how large the underground segment actually is — TTC does not disclose its revenue — and whether the data-center buildout proves to be a multi-year secular driver rather than a one-time wave.
Earnings Beat
In the second quarter of fiscal 2026, net sales reached $1.42 billion (+8.1% reported, +5.7% organic), gross margin was 33.9%, and operating margin rose 70 basis points to 14.4% — the highest in 12 quarters. Adjusted EPS of $1.60 grew 13% year over year.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.4B | $1.0B | $1.3B | +8.1% |
| Gross margin | 33.9% | 32.5% | 33.1% | +80bps |
| EBITDA | $232M | $123M | $206M | +12.4% |
| EPS | $1.50 | $0.69 | $1.37 | +9.6% |
The rate of change at The Toro Company cannot be overstated.— Rick Olson, Chief Executive Officer, June 4, 2026
Management tone: Management’s tone on the Q2 call was confident and factual, with CEO Rick Olson stating that the rate of change ‘cannot be overstated.’ The team raised full-year guidance for the second time, quantified tariff impacts transparently, and tempered expectations for near-term autonomous product revenue.
Management Guidance
For fiscal 2026, management guided to total net sales growth of 4.0–6.5%, with Professional segment growth of 5.0–7.0% and Residential roughly flat. Adjusted EPS is expected to be $4.50–$4.62 (midpoint $4.56), reflecting flow-through from the Q2 beat, offset by $0.16 in material and fuel inflation, offset by pricing and productivity actions. The full-year includes a $20M tariff refund that neutralizes the gross $120M tariff headwind. Free cash flow conversion is expected to exceed 120%.
Trajectory
Revenue growth broadened in the second quarter, with all segments contributing — underground construction up low-double digits, landscape contractor high-single digits, and golf mid-single digits. The margin improvement reflects the AMP program’s productivity gains and favorable price/cost, even as gross tariffs rose sharply.
The Model
Our model projects FY2027 revenue of $4,770 million and EBITDA of $749 million (15.7% margin), and FY2028 revenue of $5,073 million and EBITDA of $822 million (16.2% margin). The near-term forecast anchors on continued underground construction demand and AMP-driven margin gains; the FY2028 step-up assumes further productivity benefits and persistent data-center infrastructure spending.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $4.5B | $4.8B | $5.1B |
| YoY Growth | — | +5.8% | +6.4% |
| EBITDA | $553M | $749M | $822M |
| EBITDA Margin | 12.3% | 15.7% | 16.2% |
Projections are the median of 5 independent model runs. The model’s revenue sits 1.9% above analyst consensus.
For fiscal 2026, management guided to total net sales growth of 4.0–6.5%, with Professional segment growth of 5.0–7.0% and Residential roughly flat. Adjusted EPS is expected to be $4.50–$4.62 (midpoint $4.56), reflecting flow-through from the Q2 beat, offset by $0.16 in material and fuel inflation, offset by pricing and productivity actions. The full-year includes a $20M tariff refund that neutralizes the gross $120M tariff headwind. Free cash flow conversion is expected to exceed 120%.
What Could Go Right — and Wrong
- Underground & specialty construction growth accelerates beyond low-double digits as data-center and fiber buildouts continue.
- Residential demand returns to trend growth, lifting segment margins into the mid-teens and adding to consolidated earnings.
- AMP savings exceed the $125M run-rate target, driving operating margin toward 17%.
- Autonomous mower and AI-enabled irrigation products begin contributing material recurring revenue.
- M&A adds a new growth platform in a professional adjacency, boosting revenue and diversifying the portfolio.
- Data-center capex slows, and underground construction demand reverts to GDP-like growth, eliminating the segment’s premium trajectory.
- Tariff gross run-rate escalates without offsets, compressing gross margins by 100–200 basis points.
- A consumer recession pushes residential back into decline, and the buy-down trend accelerates, pressuring mix.
- A prolonged drought suppresses mowing demand across North America, reducing landscape contractor and residential revenue.
- Competition in HDD intensifies, eroding Ditch Witch market share and pricing power.
Looking Ahead
Over the next 12 months, Toro’s trajectory hinges on whether the underground construction tailwind proves to be multi-year and whether residential stabilizes. Key checkpoints include Q3 results, the tariff refund realization, AMP milestone achievement, and potential M&A. The data-center buildout narrative will likely remain a focal point.
- Q3 FY2026 (~Sep 2026)Q3 FY2026 earnings — Tests mid-single-digit sales/EPS guidance; check tariff refund accrual.
- Q4 FY2026 (Oct 2026)Full-year FY2026 results — Confirms 4-6.5% sales growth, $4.50-$4.62 EPS, and AMP $125M savings achievement.
- Summer 2026Field inventory restocking — Monitor whether zero-turn mower shipments refill depleted dealer inventories.
- OngoingTariff policy updates — New Section 232/301 tariffs could raise the $120M run-rate; relaxation a tailwind.
- 1H CY2027Autonomous product traction — Early signs of revenue from autonomous mowers or Orange Intel platform.
- OngoingM&A announcements — Management signals capacity and interest; a deal could reshape growth profile.
Financials
Annual Summary
| Metric | FY2025 | TTM |
|---|---|---|
| Revenue | $4.5B | $4.7B |
| Gross Margin | 33.4% | 33.3% |
| EBITDA | $553M | $1.2B |
| EBITDA Margin | 12.3% | 12.7% |
| Net Income | $316M | $340M |
| Free Cash Flow | $578M | $1.2B |
| Net Cash | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)33.3%
- EBITDA Margin (TTM)12.7%
- Net Margin (TTM)7.3%
- ROIC15.0%
- FCF Conversion128.3%
- SBC / Revenue0.5%
The Company
The Toro Company is a diversified manufacturer of turf maintenance, irrigation, underground construction, and snow management equipment. Its portfolio spans brands including Toro, Ditch Witch, eXmark, Ventrac, BOSS, and Tornado. Professional end-markets — golf, sports fields, landscape contractors, underground utilities, and agriculture — account for roughly 78% of revenue; the remainder comes from residential lawn and snow products sold through dealers and retail.
The company runs 32 owned or leased facilities, primarily in the United States. Underground construction equipment is built in Perry, Oklahoma, where a new paint system is under construction to support capacity. TTC is vertically integrated in key areas and operates a joint venture with Huntington Bancshares (Red Iron Acceptance) to finance dealer and customer purchases. The AMP program drives continuous improvement and margin expansion through facility optimization, automation, and workforce productivity.
Business Segments
Competitive Landscape
Toro’s competitive dynamics vary by segment. In underground construction, Ditch Witch is a leader in horizontal directional drills, with its JT21 model described as ‘replacing the de facto standard in the marketplace.’ In golf and turf, Toro benefits from an extensive installed base and proprietary dealer network that create switching costs. Residential faces price competition from Asian imports and large global brands, but Toro’s brand strength and product quality provide some insulation. The breadth of its portfolio, spanning multiple seasons and end-markets, gives TTC a resilience that narrowly focused competitors lack.
- Vermeer Corp.Named in filings as a competitor in horizontal directional drills.
- Herrenknecht AGNamed in filings as a competitor in horizontal directional drills.
- Competitor in hydrovac trucks; mentioned in industry context.
- Alamo GroupCompetitor in hydrovac trucks; mentioned in industry context.
- DeereCompetitor in turf equipment; not explicitly discussed in Toro’s filings.
Supply Chain
Toro sits between a diverse component supply base and a highly fragmented customer set. Its underground equipment is used by large infrastructure contractors — though none are formally disclosed — while turf and irrigation sales flow through independent dealer networks.